EQUUS TOTAL RETURN INC
For the period ended Sep 30, 2024. Filed Nov 14, 2024.
View on SEC.govAbout this filing
A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Sep 30, 2024 · Filed Nov 14, 2024
EQS$0.64+2.2%Stored close · as of Nov 4, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-Q
Period ended 2024-06-30; filed 2024-08-19.
0001712543-24-000057
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-Q
Period ended 2024-09-30; filed 2024-11-14.
0001712543-24-000068
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 49 previous paragraphs and 50 current paragraphs.
31 unchanged; 17 reworded; 2 added; 1 removed; 0 previous and 0 current paragraphs rearranged.
Tables are not compared: 1 previous and 1 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (2)
Current report
Interest Rates. Principally as a response to declining rates of GDP growth and inflation, on September 18, 2024, the Federal Reserve cut interest rates for the first time in four years, decreasing the federal funds rate by 50 basis points, and indicated that further cuts may be on the horizon. With decreases in the consumer price index and increases in the U.S. unemployment rate, most analysts are expecting further cuts in late 2024 or at the Federal Open Market Committee’s meetings in January or March 2025. (Sources: Forbes; The Federal Reserve Board).
Current report
Compensation expense was $0.4 million and $0.7 million for the three months ended September 30, 2024 and 2023, respectively, and $1.3 million and $1.5 million for the nine months ended September 30, 2024 and 2023, respectively. The decrease is a result of bonuses paid in 2023.
Removed paragraphs (1)
Previous report
Interest Rates. Principally as a response to rising prices, the Federal Reserve began a series of federal funds rate increases in May 2022 which continued for ten consecutive meetings of the Federal Open Market Committee until July 2023, which set the rate at 5.5%, the highest in 22 years. With decreases in the consumer price index and increases in the U.S. unemployment rate, most analysts are expecting at least a 25 basis point decrease in the Federal Funds rate at the next meeting of the Federal Open Market Committee in September 2024. (Sources: Forbes; The Wall Street Journal).
Reworded paragraphs (17)
Previous wording
Impact of Economic and Geopolitical Events on the Oil and Gas Sector. Beginning in the second quarter of 2022, crude prices began a steady decline following increases that were largely due to increased post-Covid demand and the buildup and subsequent invasion of Ukraine by Russian forces. Prices began to rise again in in the third quarter of 2023, retreated during the fourth quarter of 2023, and have increased significantly since the beginning of 2024 and stood at $82.83 as of June 30, 2024. Natural gas prices experienced high volatility in 2022 before collapsing in 2023 and have thereafter remained generally stable, finishing the second quarter of 2024 at $2.42 per MMBTU. Recent oil price stability and subsequent price increases have been significant factors in increased consolidation activity in the Permian Basin where Equus Energy holds most of its development rights, as well as in the Williston Basin region in North Dakota where Morgan holds its development rights. The U.S. Energy Information Administration has recently issued estimates of $82.03 and $83.88 for the average WTI price per barrel of oil for the years 2024 and 2025, respectively.
Current wording
Impact of Economic and Geopolitical Events on the Oil and Gas Sector. Beginning in the second quarter of 2022, crude prices began a steady decline following increases that were largely due to increased post-Covid demand and the buildup and subsequent invasion of Ukraine by Russian forces. Prices began to rise and fall in successive quarters between the third quarter of 2023 and the third quarter of 2024, and stood at $68.27 as of September 30, 2024. Natural gas prices experienced high volatility in 2022 before collapsing in 2023 and have thereafter remained generally stable, finishing the first nine months of 2024 at $2.92 per MMBTU. Relative oil price stability has been a significant factor in increased consolidation activity in the Permian Basin where Equus Energy holds most of its development rights, as well as in the Williston Basin region in North Dakota where Morgan holds its development rights. On October 8, 2024, the U.S. Energy Information Administration issued estimates of $79.91 and $73.13 for the average WTI price per barrel of oil for the years 2024 and 2025, respectively, and estimated average gas prices of $2.30 and $3.10 for 2024 and 2025, respectively.
Previous wording
Morgan has undertaken significant capital expenditures for oil and gas development during the third and fourth quarters of 2023. During 2024, Morgan undertook an additional $5.5 million in capital expenditures, principally consisting of accruals and additional costs related to the development of its initial two wells. The company is expected to incur additional capital expenditures related to drilling and completion of additional wells later in 2024.
Current wording
Morgan has undertaken significant capital expenditures for oil and gas development during the third and fourth quarters of 2023. During 2024, Morgan undertook an additional $6.4 million in capital expenditures, principally consisting of accruals and additional costs related to the development of its initial two wells. The company is expected to incur additional capital expenditures related to drilling and completion of additional wells in 2025.
Previous wording
The U.S. Economy. U.S. GDP increased at an annualized rate of 2.8% in the second quarter of 2024, significantly above consensus estimates of 2.1% for the period. This followed an increase of 1.4% on an annualized basis for the first quarter of 2024. The principal drivers of the increase were increased consumer and government spending, as well as an increase in inventories. The Conference Board is projecting slow growth at approximately 1.0% in each of the third and fourth quarters of 2024 and increasing to near 2.0% for 2025. (Sources: Bureau of Economic Analysis; The Conference Board).
Current wording
The U.S. Economy. U.S. GDP increased at an annualized rate of 2.8% in the third quarter of 2024, below consensus estimates of 3.0% for the period. This followed increases of 3.0% and 1.4% on an annualized basis for the second and first quarters of 2024. The principal drivers of the increase during the third quarter of 2024 were increased consumer and government spending. The Conference Board is projecting an increase in GDP of 2.6% for all of 2024, slowing to 1.7% for 2025. (Sources: Bureau of Economic Analysis; The Conference Board).
Previous wording
Employment and Housing. The U.S. added only 110,000 new jobs in July 2024, resulting in an increase in the unemployment rate to 4.3%, somewhat more than consensus expectations and raising concerns of a pending recession. The Congressional Budget Office is predicting a further increase to 4.7% before tapering off to 4.5% in 2025. Persistently high borrowing costs have constrained sales volumes of existing and new homes during 2023 and the first six months of 2024, although home prices continue to increase and have outpaced inflation. Recent negative economic data have resulted in downward pressure on mortgage rates, suggesting that acquisition and refinancing activity for 30-year mortgages will increase in the latter half of 2024 (Sources: Bureau of Labor Statistics; Freddie Mac).
Current wording
Employment and Housing. The U.S. added only 12,000 new jobs in October 2024, but the overall unemployment rate held steady at 4.1%, offsetting concerns of a pending recession. The Congressional Budget Office is predicting no change in the unemployment rate through 2025. Persistently high borrowing costs have constrained sales volumes of existing and new homes during 2023 and the first nine months of 2024 to their lowest levels in decades, although home prices continue to increase and have outpaced inflation. Recent releases of neutral economic data has resulted in continued high mortgage rates, suggesting that acquisition and refinancing activity for 30-year mortgages will not increase until later in 2025 (Sources: Bureau of Labor Statistics; Freddie Mac).
Previous wording
Consumer Prices. After experiencing substantial increases in 2022 and into 2023, consumer price increases have significantly ebbed. As of June 30, 2024, the consumer price index was up 3.0% over the previous 12-month period, down from 3.3% in May 2024. Largely as a result of slowing of economic growth, most commentators are forecasting a decrease in the rate of inflation throughout the remainder of 2024 and into 2025. (Sources: Bureau of Economic Analysis; Bureau of Labor Statistics; Trading Economics).
Current wording
Consumer Prices. After experiencing substantial increases in 2022 and into 2023, consumer price increases have significantly ebbed. As of September 30, 2024, the consumer price index was up 2.1% over the previous 12-month period, down from 2.3% in August 2024, and at a three-year low. Largely as a result of slowing of economic growth, most commentators are forecasting a decrease in the rate of inflation throughout the remainder of 2024 and into 2025. (Sources: Bureau of Economic Analysis; Bureau of Labor Statistics; Trading Economics).
Previous wording
Mergers and Acquisitions. After two consecutive years of declines, global merger and acquisition activity has begun to increase, with $555 billion in aggregate deal values during the first quarter of 2024 and a similar amount ($552 billion) in the second quarter of 2024, representing 8,551 separate transactions. Some industry commentators are predicting that consolidations will continue to increase in 2024, particularly in the areas of healthcare, technology, and energy. Higher interest rates and lower deal volumes have kept valuation multiples at levels consistent with previous years, which is expected to facilitate increased transaction activity through the remainder of the year. (Source: Pitchbook; S&P Global).
Current wording
Mergers and Acquisitions. During the third quarter of 2024, global merger and acquisition activity increased significantly to $160 billion as compared to $76 billion during the second quarter of 2024, although the number of transactions in each quarter remained relatively consistent at approximately 1,600. Some industry commentators are predicting that consolidations and divestitures will continue to increase, particularly in the areas of healthcare, technology, and energy. Higher interest rates and lower deal volumes have kept valuation multiples at levels consistent with previous years, which is expected to facilitate increased transaction activity through the remainder of the year and into 2025. (Sources: Ernst & Young; S&P Global).
Previous wording
Private Equity. Private equity activity, both in the U.S. and globally, slowed in 2022 and 2023 following the frenetic pace of 2020 and 2021. The first half of 2024, however showed a marked increase in aggregate deal value ($310 billion) as compared to the first half of 2023 ($250 billion), an increase of over 24%. Industry analysts are predicting artificial intelligence driven enterprises will top the list of acquisition priorities, along with energy infrastructure plays that benefit from federal incentives. (Source: Statista; S&P Global).
Current wording
Private Equity. Private equity activity, both in the U.S. and globally, slowed in 2022 and 2023 following the frenetic pace of 2020 and 2021. While the first half of 2024 showed a significant increase compared to the first half of 2023, the third quarter of 2024 finished flat, and analysts are expecting overall PE activity to be similar to that of 2023. Industry analysts are also predicting artificial intelligence driven enterprises will top the list of acquisition priorities, along with energy infrastructure plays that benefit from federal incentives. (Sources: Statista; S&P Global; Ropes & Gray).
Previous wording
During the six months ended June 30, 2024, our net asset value increased from $3.55 per share to $3.66 per share, an increase of 3.1%. As of June 30, 2024, our common stock is trading at a 63.9% discount to our net asset value as compared to 59.2% as of December 31, 2023.
Current wording
During the nine months ended September 30, 2024, our net asset value decreased from $3.55 per share to $2.96 per share, a decrease of 16.6%. As of September 30, 2024, our common stock is trading at a 54.1% discount to our net asset value as compared to 59.2% as of December 31, 2023.
Previous wording
Net investment loss was relatively unchanged at $0.9 million and $2.0 million respectively, for the three and six months ended June 30, 2024 and ended June 30, 2023.
Current wording
Net investment loss was relatively unchanged at $0.7 million and $1.1 million for the three months ended September 30, 2024 and 2023, respectively and $2.7 million and $3.1 million for the nine months ended September 30, 2024 and 2023, respectively.
Previous wording
Compensation expense was $0.5 million and $0.4 million for the three months ended June 30, 2024 and 2023, respectively and $0.9 million and $0.8 million for the six months ended June 30, 2024 and 2023, respectively,
Current wording
Total investment income was $0.3 million and $0.04 million for the three months ended September 30, 2024 and 2023, respectively, and $0.9 million and $0.06 million for the nine months ended September 30, 2024 and 2023, respectively. The increase in the nine months is due to the interest-bearing portfolio investment.
Previous wording
Professional fees were $0.4 million and $0.1 million for the three months ended June 30, 2024 and 2023, respectively and $0.9 million and $0.5 million for the six months ended June 30, 2024 and June 30, 2023 respectively. The increase was principally due to additional professional services and overall fee increases.
Current wording
Professional fees were relatively unchanged at $0.2 million for the three months ended September 30, 2024 and 2023, respectively and were $1.2 million and $0.7 million for the nine months ended September 30, 2024 and 2023, respectively. The increase was principally due to overall fee increases in legal and accounting fees.
Previous wording
General and administrative expenses were $0.06 million and $0.04 million for the three months ended June 30, 2024 and June 30, 2023, respectively, and $0.1 million and $0.7 million for the six months ended June 30, 2024 and June 30, 2023, respectively.
Current wording
General and administrative expenses were $0.04 million and $0.03 million for the three months ended September 30, 2024 and 2023, respectively and $0.1 million for the nine months ended September 30, 2024 and 2023.
Previous wording
During the six months ended June 30, 2024, we made a $2.2 million follow-on debt investment in Morgan E&P, LLC (“Morgan”). During this period, we also recorded an increase of $3.4 million in the fair value of our equity holding in Morgan. The increase was primarily due to the reclassification of a significant portion of Morgan’s proved reserves as proved developed producing, as well as the acquisition of approximately 810 additional net acres.
Current wording
During the nine months ended September 30, 2024, we made a $2.2 million follow-on debt investment in Morgan E&P, LLC (“Morgan”). During this period, we also recorded a decrease of $3.6 million in the fair value of our equity holding in Morgan. The decrease was primarily due to declines in oil prices, as well as declines in production during the period.
Previous wording
During the six months ended June 30, 2023, with respect to our holding in Equus Energy, LLC, we recorded no change in the fair value of this investment.
Current wording
During the nine months ended September 30, 2024, with respect to our holding in Equus Energy, LLC, we recorded a decrease of $2.0 million in the fair value of our investment. The decrease was primarily due to the decrease in oil prices during the period.
Previous wording
During the six months ended June 30, 2023, we made a $0.75 million debt investment in Morgan and also invested $1.00 in the equity of Morgan. We recorded a change in fair value of the equity of Morgan of $6.8 million. The increase was principally due to our expectation of Morgan drilling new wells and generating operating cash flow therefrom in the near future in the Bakken shale region where it holds leasehold acreage rights.
Current wording
During the nine months ended September 30, 2023, we made a $2.4 million debt investment in Morgan E&P, LLC (“Morgan”) and also invested $1.00 in the equity of Morgan. We recorded a change in fair value of the equity of Morgan of $15.0 million. The increase was principally due to a significant increase in Morgan’s acreage rights and associated reserves, an increase in oil and gas prices, and our expectation of Morgan generating operating cash flow from recent drilling activity in the near future in the Bakken shale region where it holds leasehold acreage rights.
Previous wording
During the six months ended June 30, 2024, with respect to our holding in Equus Energy, LLC, we recorded no change in the fair value of this investment.
Current wording
During the nine months ended September 30, 2023, with respect to our holding in Equus Energy, LLC, we recorded no change in the fair value of this investment.
Previous wording
In July 2024, our holding in $54.0 million in U.S. Treasury Bills matured and we repaid our margin loan.
Current wording
In October 2024, our holding in $55.0 million in U.S. Treasury Bills matured and we repaid our margin loan.